Coaching Clients on Retirement Income Planning a Problem for Advisors

It seems that 40% of financial advisors surveyed are having difficulty with talking to their clients about retirement income planning. We wondered…why is it so hard.

Well, for one thing the financial services industry is engineered to help people accumulate wealth not distribute it.

The other thing that really holds up financial advisors from having these conversations…it's really hard to talk to their clients and tell them that they don't like to hear. Especially when you have to tell them they haven't saved enough money and need to readjust their plans on retiring.

We've pointed this out before and will say it once again, “The financial planning system in America is fundamentally flawed”! The only prudent way to plan for retirement is to do so with the end in mind. Start with that income number and work backwards into your plan making very conservative assumptions.

There's a Billion Dollars in Unclaimed Life Insurance

A recent article over at yahoo finance claims there are “lots” of life insurance policies whose policy death benefits go unclaimed. Well, that may be a stretch but there are some ways to help find out if you have an unclaimed benefit. Here's the article from Yahoo Finance to help:

While some people leave records behind in a superbly organized “in case of my demise” file, it's not unusual for others to pass away without letting relatives know about the existence of a life insurance policy. When someone's life insurance is lost or goes unclaimed, tracking it down can take some detective work. But it may be worth your time to see if a loved one left you something besides memories.

Lots of ‘lost' life insurance
According to a recent study by Consumer Reports, 1 out of every 600 people is the beneficiary of an unclaimed life insurance policy, with an average benefit of $2,000. Jeff Blyskal, Consumer Reports senior editor and the author of the study, says at least $1 billion worth of lost or forgotten insurance policies are waiting for someone to claim them.

Life insurers, who paid out $62 billion in benefits in 2011, make efforts to find the rightful owners of unclaimed insurance proceeds, says Whit Cornman, a spokesman for the American Council of Life Insurers in Washington, D.C. “Insurance companies proactively search for beneficiaries; in fact, some companies have whole offices dedicated to that purpose,” he says.

But states want them to try harder. In recent years, several states have put laws on the books requiring insurers to use Social Security data to identify policyholders who have died and then undertake systematic searches for the insurance beneficiaries. States that have adopted these laws in 2013 include Montana and New Mexico.

Be ready for some legwork

So, do you think there might be an insurance windfall out there with your name on it? Be ready for some work. And keep in mind that insurance companies will provide information only to people who can prove they are the beneficiaries, says Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute, a New York-based trade group.

“If an insurance company won't talk to you, that's an indication that you're not entitled to the insurance benefit,” he says.

How to conduct your search

If you believe a relative who passed away may indeed have purchased a policy and named you as the beneficiary, try these steps to track down the unclaimed life insurance proceeds. You'll need the full legal name of your relative, plus it helps to have their Social Security number and any former addresses.

Search for policy paperwork. “If the death occurred fairly recently, you should check the mail and bank statements for premium payments or policy-related materials,” says Weisbart.

If you're the executor of the deceased's estate, check any safe-deposit box and go through any personal files, Blyskal adds.
Search for the insurance company. If you find evidence of a policy and can identify the insurance company, “Most (insurers) have dynamite resources available to help you manage through a claim and do it in a way that's both fast and yet sensitive,” says Joe Monk, senior vice president and chief administrative officer for State Farm's life insurance unit in Bloomington, Ill. Monk told Bankrate in an interview that beneficiaries who can't locate the insurance company listed on a policy should contact their state insurance department.

Make sure you're looking in the correct state. You need to know where the policy was purchased. “Even if your relative died in Ohio, they might have lived in Illinois when they bought life insurance,” Blyskal says.
If the insurance company went out of business, the state insurance commissioner should have records on what happened to the policies, Weisbart says.

Check with rating services. An insurance rating agency, such as A.M. Best Co., also should have information to help you track insurers, including those that are defunct, says Weisbart.

Search for a financial connection. “If your relative worked with an insurance agent, accountant or financial planner, that person may know what insurance company a life insurance policy was with, even if (the professional) didn't have anything to do with that particular policy,” says Weisbart.

Look for a missing policy locator in your state. Cornman says these services, typically part of the state insurance office, allow consumers who believe they are the beneficiary of a life insurance policy purchased in that state to submit a request to have life insurance companies located there to check their files.

Search unclaimed property files. “Each state has different rules about when leftover insurance benefits need to be sent to an unclaimed property office, but eventually unclaimed funds will be sent there,” says Cornman. MissingMoney.com, a database endorsed by the National Association of Unclaimed Property Administrators, allows you to search for unclaimed property in most states.

“You should check in the state where you think the policy was purchased, under the name of the policyholder and the name of the beneficiary,” Blyskal says.

Check with a former employer. According to Blyskal, most insurance policies purchased through an employer are term policies that provide coverage only during the time of employment, but sometimes an individual will continue the policy. He suggests making inquiries with former employers, labor unions or professional associations.

Pay for a search of the MIB database. This is a cooperative database (which once stood for Medical Information Bureau) created by life insurance companies to keep track of insurance applications. “I wouldn't recommend doing this first, but if you're pretty certain there's an insurance policy out there that belongs to you, you can pay a $75 fee for a search,” says Weisbart.

Take away a lesson

While it's too late for your deceased relatives to provide you with information on their insurance policies, maybe they have provided a good learning opportunity so the next generation will be spared from hunting down unclaimed life insurance.
Weisbart says if you're insured, “Tell your family members that you have a life insurance policy. Give your insurance company as much detail as possible about your beneficiaries, including their name, address and Social Security number, to make it easier for the insurance company to find them.”

CNBC says the Average Retirement Age is Moving Up?

Not surprisingly to us, the average retirement age for Americans has no risen to 61, up from 57 just 20 years ago. People just don't have the money to retire when they had planned. Why? The market hasn't performed as they projected and/or they just haven't saved enough to draw an income from their pot o'money.

The average U.S. retirement age has climbed to 61, up from 57 two decades ago, and it's likely to age higher, according to Gallup's Economy and Personal Finance survey.

The average non-retired American now plans to retire at 66, up from 60 in 1995, according to the Gallup survey.

“Because most of the uptick came before the 2008 recession, this shift may reflect more than just a changing economy,” Gallup's associate editor Alyssa Brown wrote in her report on the study. “It may also indicate changing norms about the value of work, the composition of the workforce, the decrease in jobs with mandatory retirement ages, and other factors.”

The trend to retire older started in the 1990s, said Richard Johnson, the director of Urban Institute's Program on Retirement Policy.

“I think this trend is one of the most important changes we've seen in the labor force in the last quarter of a century,” Johnson said. “I think it's a really positive development. A lot of people are working longer because they want to work longer. The incentives to work longer have increased.”

Until the 1990s, the retirement age for men had actually been trending younger as pension plans, Social Security benefits and personal savings accrued at a healthy rate, Johnson said.

“That trend stopped and then reversed in the early 1990s,” he said. The trend is similar but more complex for women, he said, because they were entering the workforce at greater numbers as well as working later than before.

Data from the U.S. Bureau of Labor Statistics also show that for workers 55 and over, the labor force participation rate, which includes both the employed and those who would like to be employed, changes its direction in the early 1990s. About 30 percent of those 55-and-older were working in the early 1990s. Since 2008, about 40 percent of the 55 have remained in the work force.

In the early 1990s, about 11 percent of those 65 and older remained in the workforce. By contrast, this April, 19 percent remained at work, according to the most recent monthly calculations from the BLS. The pattern continues for those 75 and older. In the 1990s, 4 percent of the population over 75 remained in the workforce. Since December, it has been above 8 percent each month.

Those polled in the Gallup survey agreed they will be working later in life, a sentiment most strongly voiced by the oldest workers. More than half of the non-retirees in the 58 to 64 age bracket expect to retire after they turn 65, compared with 36 percent of non-retirees aged 50 to 57, 38 percent of people between 30 and 49, and just 26 percent of those younger than 30.

The Gallup poll is based on telephone interviews conducted from April 4 to 14 with a random U.S. sample of 2,017 adults. There is a sampling error rate of ±3 percentage points for the full group and a ±5 percentage point rate for the sample of the 636 retirees.

Lump Sum Pension Payouts

The PPA (pension protection act) that was passed in 2006 still has some little known provisions that surface from time to time. Most recently there's been a buzz about pensions that are offering their beneficiaries a lump sum payout instead of a traditional annuitized benefit. Seems like a good deal right?

Brantley is a practicing life insurance agent and has been for nearly 18 years. After years of trying to sell like his sales managers wanted him to, he discovered that people want to buy life insurance if you actually explain the benefits.